New Zealand announces changes to forestry under the NZ ETS introducing averaging accounting

On 27 March, the New Zealand Government announced a further set of changes to the NZ ETS, intended to simplify accounting and improve operations for forestry sector participants. The changes will see ‘averaging’ introduced for all forests newly registered in the NZ ETS from 2021, with the option for those registering in 2019 and 2020 to adopt the new accounting method if they choose. Further details of the forestry sector regulatory changes, including whether existing ETS participants can transition to the averaging method and how carbon in harvested wood products (HWP) should be accounted for, are expected to be announced in May.

Since 2008, forest owners under the NZ ETS have been obliged to account for the carbon stocks, emissions and removals of their forest land. Owners of new forests (planted after 1990) can opt to join the NZ ETS and earn credits (NZUs) for CO2 removals as their forests grow, while all forests (old and new) face corresponding liabilities for deforestation. The current ‘stock change’ method requires forest owners to account for any change in their carbon stocks, even if the change is temporary. For example, new rotational forests (common in New Zealand are fast-growing pinus radiata plantations, with a timber harvest cycle of around 20-30 years) can choose to enter the ETS and gain credits as their carbon stock grows. At harvest, they must then surrender a large proportion of the credits back to the government, even if the land is to be replanted. Under the new ‘averaging method’, forest owners who replant after harvest will not need to surrender allowances, but would instead receive fewer allowances as their forests grow - up to the long term average carbon stock of the forest. Full liabilities for emissions remain if the land is deforested or sold.

The announcement is part of the ongoing reforms of the NZ ETS, which follow from an extended review and consultation process, and resulted in a first set of decisions taken in December 2018. The changes in forestry accounting, together with a range of operational changes for the sector, are aimed at reducing administrative complexity and streamlining the ETS process for forest owners, thereby also encouraging new forestry investors to join the system. The changes will also align the NZ ETS with New Zealand’s new national LULUCF accounting approach under the Paris Agreement as outlined in their first NDC.